By  on January 27, 2009

Anticipating difficult economic conditions well into 2009, Target Corp. on Tuesday unveiled job cuts affecting about 9 percent of its headquarters staff in Minneapolis and St. Paul. The company said 600 jobs will be eliminated at its headquarters and 400 open positions will not be filled. In addition, Target said it will close its Little Rock, Ark., distribution center, which employs 500 people, later this year.

Target has experienced weaker-than-expected sales, which is pressuring earnings performance. Same-store sales in November declined 10.4 percent compared with the same prior-year period and comp-store sales in December decreased 4.1 percent. Earnings per share in the third quarter ended Nov. 1 dropped 13.8 percent to 49 cents a diluted share from 56 cents in the same period a year ago.

The retailer is taking a more conservative approach to its business planning as it continues to grapple with an increasingly frugal customer base that’s buying necessities rather than the apparel and other discretionary products that account for 40 percent of Target’s merchandise mix.

“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions to ensure Target remains competitive over the long term,” said Gregg Steinhafel, president and chief operating officer of Target.

Other measures to manage expense and capital investment have recently been undertaken by the retailer, including suspending salary increases for senior management, suspending share repurchase activity, tightening credit card underwriting and credit granting, implementing initiatives to improve store productivity and reducing planned new store openings.

“The bottom line is the company is fine-tuning its business model with regard to investments and overhead,” said Bill Dreher, a retail analyst at Deutsche Bank. “They’ve already brought down [2009 planned] square footage growth from 7.5 to 4.5 percent. Target used to do comps of 4 to 6 percent. Even when we get out of this horrible environment, their results will be lower. They will have to bring down the corporate overhead and this is one way of doing it. It’s a painful process.”

Target said affected headquarters employees will receive full pay and benefits through April 1. After that they will receive a separation package based on their years of service. Workers at the Little Rock distribution center will be offered jobs at other centers or will be eligible for separation packages. Target expects to record a charge of about 3 cents a diluted share occurring mostly in the 2008 fourth quarter. Target said the annualized benefit from the actions should exceed the charge.

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